Bridgelux cuts jobs, changes strategy

Bridgelux Inc., a light emitting diode company that was founded in Sunnyvale and moved to Livermore last year, is reportedly laying off one-fifth of its work force and discontinuing its onsite chip fabrication.

The company is making a radical shift away from traditional LED technology to gamble on an as-yet unproven fabrication process that could significantly lower manufacturing costs – if it can scale.

Bridgelux is making this shift with a $20 million investment from a large Japanese conglomerate, which unnamed sources with knowledge of the deal said is Toshiba Ltd. Representatives from Toshiba did not respond to requests for comment, and Bridgelux would not confirm the investor or amount invested in the deal.

This strategic move is reportedly why Bridgelux laid off 53 workers, although sources with knowledge of the matter say this number is just full-time employees, and the actual number when accounting for temporary and contract employees is much higher, potentially as much as half of its 250 employees.

New direction

Bridgelux announced a breakthrough in March 2011 that will allow the company to produce LEDs on silicon, which Bridgelux thinks could reduce its cost by as much as 75 percent compared to traditional methods. Company officials think they are about 18 months away from bringing this technology to market, according to Brian Fisher, director of corporate marketing.

In an internal email obtained by the Business Journal that was sent to Bridgelux employees on Sept. 22, Bridgelux CEO Bill Watkins said the decision to transition away from one type of raw material to another (sapphire to silicon substrates) is because the company has been experiencing significant price pressure on its Generation 3 LED chips. This has been “a financial drain on the company,” Watkins wrote in the email.

He went on to say that profits from its core business, LED lighting fixtures for the building industry, remain strong and will largely fund the research and development effort to bring the silicon LEDs to market. Bridgelux reported $31.9 million in revenue in 2010.

Bridgelux is venture backed with $180 million in investment from Doll Capital Management, El Dorado Ventures, Harris & Harris Group, Chrysalix Energy, VantagePoint Capital Partners, VentureTech Alliance, and Craton Equity Partners. It closed its last round in July, a $60 million series E.

The company will continue to manufacture its LED lighting fixtures in Livermore, using LEDs from partners in Taiwan, according to Fisher.

Big risk, big reward

Konkana Khaund, North American industry manager for environmental and building technologies at the market research firm Frost & Sullivan, said Toshiba’s involvement wouldn’t surprise her at all.

Asian companies like Toshiba and Mitsubishi Corp. have struggled to bring their LED lighting products to market in the Americas because they lack local manufacturing and the necessary connections to local buyers, she said. At the same time, the LED lighting market in Japan has exploded as the country attempts to decrease its energy usage in the wake of the 2011 earthquake, which damaged its power generation infrastructure. Given the down market in the U.S., it’s a perfect time for these companies to start looking to purchase or partner with American companies.

“A lot of Asian companies look at the U.S. as a buyer’s market right now,” she said. “This is a good match.”

Asian companies currently dominate the market for LEDs because they can make them at a price point that’s difficult for competitors to match, said Khaund. However, there are quality control concerns with these LEDs that have prevented them from being widely adopted in the American and European building industries.

If Bridgelux can create higher-quality silicon LEDs at a more attractive price point than has been possible previously, they could potentially capture a significant share of what some analysts predict could be a $10 billion U.S. market by 2015, she said.

Still, Bridgelux is taking a considerable risk in converting to silicon substrates, said Vrinda Bhandarkar, director of research for the LED market at Los Altos’ Strategies Unlimited, a market research firm.

No one has yet been able to make commercially viable silicon LEDs, although a number of companies have claimed to, she said. And traditional sapphire substrates, whose high cost makes silicon desirable, have been getting cheaper.

Bridgelux could be setting itself up for a situation similar to Solyndra LLC, whose technology to make solar panels without silicon was rendered unmarketable when silicon dropped dramatically in price.

“If Bridgelux has what they say they have, then they are up to something significant,” she said. “But nobody has seen the product.”

Jon Xavier can be reached at 408.299.1826 or jxavier@bizjournals.com

What’s are LEDs, and how can Bridgelux improve it?

LEDs are essentially crystals grown on a substrate that glow when exposed to an electrical current. Traditionally the substrate has been made of sapphire or silicon carbide, which are expensive and hard to source. Bridgelux is focusing on growing LEDs on silicon wafers, which are both cheaper and more available as they are widely used in the semiconductor industry. However, it has been difficult to create silicon-based LEDs in the past, because silicon and the gallium nitride used to make LEDs expand at different rates when heated, and the manufacturing process exposes them to considerable heat, leading to cracking and warping unless steps are taken to prevent this.